Situation

A public company in the hotel industry, with annual revenues of about $400 million, needed additional capital to grow its business. The capital was needed largely to finance the acquisition of additional hotel properties. The company also had a revolving credit agreement that was maturing and needed to be paid off. In making its decision on the best way to pay off the existing debt and obtain new capital, the company had to weigh the alternatives to get the necessary financing on reasonable terms against the long-term risk to its business and its shareholders. The timing of the expenditures with the new capital was somewhat unpredictable, due to uncertainty in the deal-making process, which impacted the decision.

Solution

The company had access to various types of debt and equity capital, both public and private, since it was profitable and growing significantly. The CFO now a NextLevel team member, working along with the treasurer, considered all the alternatives for getting the necessary funding. They chose to enter into a new syndicated revolving loan agreement as the most prudent course of action. With this financing the company was able to pay off the existing debt and have new capital available to it when needed. This was the best combination of capital availability, cost-effective financing costs, and flexibility in new spending.

Results

  • The company did not have to use a more expensive or less flexible type of debt.
  • The company did not have to use equity financing that would have diluted existing shareholders.
  • The company was able to use the additional funding to acquire new hotel properties and accelerate its growth.

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